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What to Know About Unclaimed Property Tax

What to Know About Unclaimed Property Tax

Unclaimed properties are everywhere, not only in the United States but all over the world. Every country has laws for unclaimed properties to help the proprietor locate the lost or forgotten assets. The state considered it unclaimed property or abandoned property if the property has no contact with the owner after certain years. 

Unclaimed property can be accounts, businesses, stock, deposit boxes, buildings, assets, credits, unclaimed gift cards, or insurance claims. The property must be left unattended for 20 years to be considered unclaimed.

However, a business is expected to file unclaimed accounts and pay the state every year. The state laws commandeer unclaimed properties until the owner comes to reclaim such property. Most taxpayers neglect the aspect of unclaimed property, which can be detrimental to a business. 

Following the rules regarding unclaimed property, however, can be murky due to the definition of unclaimed property and account balances and the state responsible for the unclaimed. Each state has its rules and compliance regarding unclaimed or abandoned property.


Unclaimed Property Tax

As aforementioned, unclaimed accounts are remitted to the state in some cases, like the account holder's death or failure to update the forwarding address. The unclaimed property is not taxable by law but will remain under taxable income. 

Regardless, an unclaimed property undergoes annual audits, reports, and tax requirements but are not taxable. The state commandeers the property for safekeeping until the rightful owner comes to claim the property. The revenue collected on the unclaimed property is a percentage of the transaction to keep the property. Since the state is the custodian of the property, tax matters like tax retention, statutes of limitation, and nexus are not applicable.


Logic behind Unclaimed Funds

The unclaimed property can result from a taxpayer's forgetfulness to change the forwarding address with the tax authority. On the other hand, it could be the bank's failure to update customers on the expiration date of unclaimed funds or they do not know the owner of the funds. The most common type of unclaimed funds is pensions. Most companies forget to notify their customers of administrative information about their pensions. 

Every property has a dormancy period for the proprietor to report before being regarded as unclaimed. The dormancy period is when a financial institution assesses the property or asset; afterward, the government labels the property or asset as unclaimed. Generally, the dormancy period is five years before a state designates the property as unclaimed or abandoned. When the property or asset is considered unclaimed or abandoned, it undergoes an escheatment. The escheatment process is when the state takes responsibility for the property or asset before the owner comes to claim.

 

How to Reclaim Unclaimed Property

Each state has compliance when reclaiming an unclaimed property or asset. The federal government has no specific site to find unclaimed property. However, a popular place to check is the comptroller's office, tasked with the duty of registering unclaimed property. 

States may declare unclaimed funds and use them for issues concerning the state. Still, the government keeps track of unclaimed funds as debt to be paid by or to the property owner. The law does not allow government agencies to contact the unclaimed property or asset owner by phone. So beware of scammers.


What Can I Do?

Owners: review unused gift cards, uncashed checks, or other forgotten assets and begin to cash in on them. There is more to benefit if you cash it yourself than when you have to reclaim it from the government. 

Businesses: review your business records for forgotten properties or assets that have not been reported. Make sure to file a report before the state discovers it.


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